Consumer Discretionary
A contemporary gordian knot - after a complete failure at anticipating and forecasting demand trends and overseeing a decline of 71% in the stock price during FY22, management now predicts $1bn in combined FCF during FY23 & FY24. FCF has swiftly become important with Debt/EBITDA increasing from 2.96x (Sep 2019) to 6.03x (Sep 22) and set to deteriorate further in 1H23. Neeraj Monga does not buy into the turnaround story and believes the current rally in SMG’s stock price is the perfect time to bail out. Trading at a premium to its long-term pre-Covid mean valuation, Neeraj argues that after considering all plausible optimistic outcomes, the stock is at best worth $44/share.
Edition: 153
- 03 February, 2023
Consumer Discretionary
This new short idea was generated from Eric Fernandez's Earnings Quality Model - the core lawn care business is caught between rising fertiliser prices and declining demand after the Covid “fix-up-your-home” wave began to dissipate. At the same time, SMG’s cannabis growth strategy has fallen apart. The cannabis industry faces overcapacity that has decimated its Hawthorne segment, leading to a 65% decline in sales last quarter. Leverage remains alarmingly high (proforma leverage is 6.8x next year’s EBITDA) and while management has embarked on a restructuring plan to reduce expenses and inventory, and reclaim margins, Eric believes forecasts are overly optimistic.
Edition: 143
- 02 September, 2022
Value stocks for 2022: Uber (UBER), Bank of America (BAC), Scotts Miracle-Gro (SMG)
Jonathan Boyar recently spoke to Barron’s about Boyar's Forgotten Forty portfolio which has produced an average annual gain of 11.5% over the last decade - all the companies highlighted are businesses which they believe are most likely to outperform the leading indices in the year ahead due to a catalyst on the horizon. Stocks discussed include:
UBER - Profitability in Mobility business is underestimated. It also holds valuable equity stakes in other ride-hailing businesses worth ~$10bn. TP $79 (100%+ upside).
BAC - The most interest rate sensitive of the major US banks; lots of room for NII to rise. TP $61 (30% upside).
SMG - Cannabis business (which has grown 100% in the last 2 years) is in the price for free. TP $242 (~75% upside).
Edition: 129
- 18 February, 2022